FINRA Fires Then Rehires Arbitrators That Ruled Against Merrill

The Financial Industry Regulatory Authority (FINRA), the securities industry’s self-regulating body, has rehired three arbitrators the organization recently blacklisted after the trio ruled against Merrill Lynch in an arbitration proceeding. The reinstatement move came after one of the fired arbitrators submitted a “whistleblower” letter to the SEC stating that her firing was related to an adverse ruling she made against one of FINRA’s members.

FINRA is a non-governmental agency created by the securities industry to oversee the operations of all securities firms and professionals doing business in the United States. The organization’s mission is to protect American investors by making sure the securities industry operates fairly and honestly. FINRA is funded by brokerage firms such as Merrill Lynch.

Ilene Gormly, a FINRA arbitrator with about 20 years of experience, informed the SEC that she received a “black spot” letter from FINRA in January 2012 several months after she and two other arbitrators ruled against Merrill in a case. The two other arbitrators, Daniel Kolber, a securities-law attorney and the founder of Intellivest Securities Inc., and Atlanta attorney Fred Pinckney received similar “black spot” letters informing them that they are being scratched off the list of active members of FINRA’s dispute resolution roster of arbitrators.

The case assigned to the three arbitrators was filed with FINRA by Robert Postell and Joan Postell. The husband and wife were seeking $640,633 against Merrill Lynch alleging that the financial institution failed to adequately monitor their accounts resulting in breaches of contract and fiduciary duty.

In May 2011, the FINRA arbitrators heard the Postells’ arbitration claim in seven sessions over four days and found Merrill Lynch liable and ordered the firm to pay to $520,000 ($442,794.00 in compensatory damages plus interest at the rate of 7% per annum from November 6, 2008 until May 6, 2011 in the amount of $77,489.00). Kolber was the first to receive a “black spot letter” from FINRA, followed by Gormly in January 2012 and Pinckney in June 2012.

On July 25 FINRA reinstated the three arbitrators, according to a Bloomberg article by William Cohan. Linda Fienberg, president of FINRA’s dispute resolution, denied any causal link between the firing of the three arbitrators and the complaints from Merrill and its attorney about the Postell award. “There is no validity to this assertion,” Fienberg wrote. “FINRA simply does not remove arbitrators from the roster based upon their awards, and never has.”

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This entry was posted on Monday, August 13th, 2012 at 4:38 pm and is filed under WT Blog.
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